Is the TVIX Really the Devil?

Jan 26, 2012
J. Webster
Comments Off on Is the TVIX Really the Devil?

So what in the hell is the TVIX? And why is it so evil? One day trader on Twitter recently said the TVIX was the devil and don’t touch it. ZeroHedge said you’d have better odds at Vegas and it’s a guaranteed way to lose your money.

But the TVIX, for those who want to join the dark side, is a double leveraged view on the S&P VIX short term futures. And the VIX of course is that ever friendly “fear gauge” you hear about all the time on CNBC or Bloomberg, it measures the prices — the implied volatility — of puts and calls on the S&P 500. The more put options the more fear. The more call options the less fear.

So, for example, when there’s wind of another European country on the verge of collapse, the VIX will soar higher and the TVIX will climb doubly higher. However, when there’s good news and the stock market is all green, then the TVIX gets crushed – double time.

This is where it gets interesting though, if you are willing to take a risky bet, the reward could be quite high. And, right now, with the stock market seemingly only drifting higher and higher and the seas calm and steady, the TVIX is down now from $100 to nearly $17. Is this the time to get back into the TVIX? Dance with the devil. Proceed with a great deal of caution.

Here’s the six month chart for the TVIX. Who knows how low this will go but could it be nearing a bottom?

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